What is Past Adjustment?
There are specific situations in a firm where consequence like an omission of an entry, a mistake in accounting, change in profit sharing ratio (PSR) with retrospective effect, etc., Few adjustments examples are :
- When there is a single error: Under this scenario, an adjustment table is prepared and an adjusting journal entry is outlined to correct the error
- When there are multiple errors: In this scenario, the enterprise outlines the Profit and Loss Appropriation account, which is a part of the final account, in working notes along with the specific table. Subsequently, necessary changes will be made in the journal entry
Occasionally, a few exclusions or errors in the preparation of statements are initiated after the final a/c have been outlined and the profits allocated among the partners. The exclusion may be in respect of interest on drawings, interest on capital, partner’s salary, interest on partners’ loan, outstanding expenses or partner’s commission. There may be some differences in the provisions of partnership deed or structure of accounting possessing influence with retrospective effect. All these acts of exclusion and commission require adjustments for rectification of their influence. Instead of modifying old account, required adjustments can be made either :
- Through ‘Profit and Loss Appropriate A/c’
- Directly in the Capital A/c of the particular partners
The above mentioned is the concept that is explained in detail about Past Adjustments for the class 12 students. To know more, stay tuned to BYJU’S.